The Monetary Policy Committee (MPC) are expected to cut interest rates by 0.25%, though rising unemployment and high inflation have cast doubts.
Tomorrow (August 7th) members of the Bank of England (BoE) are due to meet and decide whether interest rates should be cut. Currently rates are set at 4.25% but experts believe this figure will be reduced to 4%.
The number has steadily been coming down since they reached their peak of 5.25% in August 2023. The latest cut came in May this year when the BoE revealed they would lower to 4.25% from 4.5%.
However, in June the rates were held as the bank’s chief executive, Andrew Bailey, said ‘the world is highly unpredictable’ – a notion we have definitely experienced over the last year and last month especially.
For example, the latest inflation figures were higher than expected. The consumer prices index increased by 3.6% in June, which is well above the MPC’s 2% target.
The increase in basic essentials, such as meat, butter and fuel, caused inflation to be higher than anticipated.
What’s more, Trumps tariffs and extra business taxes which came into effect in April were blamed as the reason why the economy shrank in May by 0.1% and in April by 0.3%.
To give further context into weaker growth, data from the Office for National Statistics shows vacancies fell below pre-pandemic levels and the unemployment rate rose to 4.7% in the three months to May 2025, reaching the highest level since 2021.
Despite apprehensions, chief investment analyst at Charles Stanley, said: ‘An August cut still seems likely as the lacklustre growth picture and the deteriorating labour market come more sharply into focus, but the lingering effect on wage inflation and payroll costs could make further cuts a longer time coming.’
However, speaking to the Guardian, Matt Swannell, chief economic advisor to the EY Item Club, theorised the BoE’s vote will be spilt.
‘Signs of lingering price pressures will mean the committee remains cautious, with two of the hawkish MPC members expected to favour no change,’ Matt remarked. ‘The increase in food prices is particularly important to the MPC as it feeds through to households’ inflation expectations – one of the committee’s key gauges around the risk of inflation persistence.’
Echoing a similar tone, Peter Stimson of MPowered Mortgages claimed June’s higher-than-forecast rise in inflation will stall the BoE’s decision to lower interest rates.
‘Britian’s inflationary relapse will crystallise the view that the time is right to cut the base rate to give the stagnant economy the boost it needs, and when the MPC meets…it’s likely several members will vote to hold off on a rate cut.
‘While the weakness of the economy means the Bank will be keen to resume rate cuts in coming months, the likelihood of an August cut has plunged from near certain to barely 50/50.’
Photo by Francais a Londres via UnSplash
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